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How to Start a Business in Canada

Feb 15, 2024 | Business Setup

Embarking on the journey of how to start a business in Canada is an exhilarating venture that promises opportunities for innovation and growth. The country’s robust economy and supportive regulatory environment make it an ideal location for entrepreneurs to establish their presence. The process is detailed but manageable, from understanding the federal and provincial business registration and requirements to navigating the Canadian tax system and adhering to employment laws. Industry-specific regulations and securing the necessary permits and licences are equally important steps.

We’re here to give you a comprehensive roadmap for setting up a successful business in Canada, providing insights into the financial considerations, operational setup, and the advantages this diverse and thriving nation has to offer to business owners. Whether you’re a resident or a non-resident, Canada’s welcoming business landscape is structured to support your entrepreneurial ambitions.

Canadian Business Regulations

Federal and Provincial Registration Requirements

Starting a business in Canada means you’ll need to get a handle on a series of regulatory requirements. These vary depending on whether your business is incorporated federally or provincially. If you incorporate federally, you can operate anywhere within Canada without restrictions on the location of your head office, where you maintain corporate records, or where you hold your annual general meetings.

Being incorporated at the federal level is often seen as prestigious. It gives your business a nationally recognised status and the advantage of global recognition as a Canadian entity. The process of naming a corporation is stringent. Corporations Canada conducts thorough checks to ensure the uniqueness and legal availability of your business’s proposed name.

Once your business name is approved, it’s protected nationwide. This level of safeguard is second only to trademark protection. Plus, the convenience of online services offered by Corporations Canada makes the process of document submission and fee payment more efficient for setting up new businesses.

Navigating the Canadian Tax System

Knowing the Canadian tax system is key for resident and non-resident business owners. The Canada Revenue Agency (CRA) administers a federal tax system that imposes corporate and personal income tax on residents for worldwide income and capital gains. Non-residents who conduct business, are employed, or sell certain types of property in Canada are also subject to Canadian income tax.

This includes a 25% withholding tax on various forms of income, such as dividends and royalties. However, Canada’s extensive network of double-tax treaties might reduce or eliminate this rate. You must also be aware of the sales tax landscape in Canada, which includes the federal goods and services tax (GST), provincial sales taxes (PST), and the harmonised sales tax (HST) in certain provinces.

The GST is a value-added tax levied on most goods and services. The PST is charged to end users in specific provinces. The HST combines both federal and provincial sales taxes, streamlining the process in participating provinces.

For corporations, the combined federal and provincial corporate tax rate on general active business income varies by province, ranging from 23% to 31% as of 2023. Canadian resident corporations must include half of all capital gains in their taxable income. Non-residents are only taxed on gains from the disposition of taxable Canadian property, subject to exemptions under double-tax treaties.

Complying with Employment Laws

As an employer in Canada, you must adhere to a comprehensive set of employment laws that govern labour standards. These standards are outlined in Part III of the Canada Labour Code and cover a wide array of employment aspects, including working hours, annual vacation entitlements, general holidays, and various types of leave.

You’re also responsible for making contributions under the Canada Pension Plan (CPP) and paying premiums under the federal Employment Insurance Act. The Code ensures that all employees, including interns and student interns, are fully protected under labour standards.

It also provides guidance on wage-related issues, such as minimum wage, pay deductions, and wage recovery assistance. You must follow specific procedures when terminating employment, including layoffs and group terminations. Employers are encouraged to work with employees to balance work and home life.

Industry-Specific Regulations and Licences

If you’re operating in certain sectors in Canada, you must comply with industry-specific laws and may need to obtain relevant licences or permits. Industries such as aviation, broadcasting, telecommunications, energy, financial services, and healthcare are subject to particular regulatory regimes, including environmental laws. These sectors may also face ownership restrictions, which underscores the importance of familiarising yourself with the regulatory landscape before starting a business.

In addition to federal regulations, provincial, territorial, and municipal permits and licences might be required. These can relate to a variety of operational aspects, including labelling, privacy, competition, and measurement accuracy. Regulations specific to sectors such as agriculture, forestry, mining, oil and gas, and telecom must also be taken into account.

For businesses that facilitate interactions between other businesses and the government, resources are available to help you navigate the regulatory environment. This includes initiatives aimed at reducing red tape and internal trade barriers. There are also opportunities for consultation on regulatory matters.

Screenshot Of Corporation Canada Website

How To Start A Business In Canada

Develop a Business Plan

Crafting a comprehensive business plan is essential. This strategy document will delineate your business concept, scrutinise market conditions, and specify the resources required. It forecasts financial performance and serves as a strategic guide for expansion, often being essential for securing financing or enticing investors.

Choose a Business Name

Selecting an appropriate name for your enterprise is vital. It should encapsulate the essence of your offerings and be distinct enough to prevent legal disputes or confusion with established entities. The name should be memorable and easily articulated.

Conducting exhaustive searches online is recommended to verify the name’s availability and distinctiveness. This includes examining domain names and social media presence. Utilising national databases, such as Nuans reports, can be beneficial.

Decide on a Business Structure

Opting for a business structure will influence your legal liability, governance, and tax obligations. Your choices of business structures may include incorporation, partnership, or sole proprietorship, each with distinct benefits.

Your decision should reflect the specifics of your venture, your desired level of control, the degree of liability you are prepared to assume, and the tax consequences.

Register and Incorporate Your Business

Initiating the incorporation business registration process involves selecting a corporate name. You have the option of a distinctive word name or a numbered name assigned by Corporations Canada. Next, you’ll outline your business’s framework and specify a registered office.

You must appoint directors and reveal any significant controllers. The culmination of this process is filing your incorporation application with requisite documents, such as articles of incorporation. You must also secure a federal business number and tax account, business banking, and ensure registration in other Canadian jurisdictions if you intend to conduct business there.

Obtain Permits and Licences

To lawfully conduct your business, you may require various permits and licences, contingent on your industry and locale. Adherence to government stipulations is compulsory.

Resources like BizPaL can assist in identifying the specific authorisations needed, aggregating data from multiple government tiers.

Open a Bank Account and Apply for a Business Credit Card

Establishing a separate business bank account and securing a business credit card is imperative for delineating personal and business finances. This step not only aids in building a credit history for your enterprise but also simplifies financial management and enhances your professional reputation.

Get Business Insurance

Safeguarding your business against unforeseen perils and liabilities is indispensable. Business insurance acts as a buffer against various threats, including property damage, legal liabilities, and employee-related risks. The requisite insurance coverage will depend on your business’s nature and risks.

Consulting with insurance experts is advisable to ensure comprehensive protection.

Screenshot Of The Canada Pension Plan Webpage

How much money is required to start a business in Canada?

The initial capital required can vary greatly depending on the type and size of your business, where you’re setting up shop, what you’re selling or offering, and how many people you plan to hire.

Finding a spot for your business is one of the first big expenses. Office space costs can swing from as little as $3 per square foot to more than $20 per square foot, reflecting the different economic vibes from busy city centres to more laid-back rural spots.

You’ll also need to budget for equipment and furniture, which could cost you from $5,000 to $10,000, or even more if you need specialised gear.

Legal and business registration fees are key parts of your financial plan when you’re just starting out. These can start at around $500 but might climb above $10,000. The cost to register your business isn’t the same everywhere in Canada—it changes from province to province.

For example, in Ontario, you’re looking at a starting cost of $134 plus tax to register a business. It’s less in Alberta, starting at $113 plus tax. Whether you decide to incorporate federally or provincially will also play into your startup costs, with federal incorporation usually being pricier and coming with more paperwork.

Insurance is a must-have to safeguard your new venture against the unexpected. Luckily, most companies offer basic business insurance at a reasonable monthly premium, which is a small price for a lot of peace of mind.

Having enough working capital is like having the fuel to keep your business running, especially during those first few months. Small business loans can be a lifesaver here. Take the Canada Small Business Financing Program—it’s there to make it less risky for lenders to give you a loan, which can help small and medium-sized businesses.

Remember, only some businesses in Canada have to be registered. You don’t need to worry about this step if you’re a sole proprietor using your own legal name. And in some places, like Newfoundland and Labrador, there’s no need for sole proprietorships or partnerships to register their own business names.

Industry experts say you need between $5,000 and $10,000 to get a small business off the ground in Canada. But if you’re starting, your costs might be on the lower end since you won’t have the bigger expenses that come with a more established business, like wide-reaching marketing campaigns or a big team hiring employees.

If you’re on the hunt for funding, having a solid business plan is key, and you should be ready to explore different funding sources, including your personal contacts or outside investors. Plus, government programs like the CEBA and the BCAP are there to help businesses cover operational costs and get access to the funds they need when times are tough.

Screenshot Of Canada Small Business Financing Program Website

Launching Your Business

Finalising Location and Lease Agreements

Securing a physical location involves negotiating a commercial lease agreement, which outlines the terms of your tenancy. Ensuring the lease permits the specific business activities you plan to undertake is crucial. Landlords may offer exclusive rights to prevent direct competition within the premises. The agreement should detail the lease duration, rent, late payment penalties, security deposits, and who bears the cost of utilities.

The responsibilities for insurance and property improvements need to be clear. You must operate according to all applicable laws and maintain a reputable presence. Review the lease for clauses on subletting and assignment and the landlord’s expectations for property maintenance and use. The premises should be returned in good condition upon lease termination, except for normal wear and tear. Any damages or significant issues must be communicated to the landlord.

Both parties are expected to adhere to all health, sanitation, fire, housing, and safety standards.

Securing Inventory and Supplier Relationships

A crucial step is to establish a supply chain by forming relationships with suppliers to ensure a consistent inventory. Negotiate terms that balance costs with the possibility of discounts or extended contracts.

Setting Up Business Operations

After laying the legal groundwork and ensuring compliance, you must secure the necessary permits and licences from various levels of government. Entrepreneurs have access to financing options and can benefit from consultations with liaison officers to understand common pitfalls, learn about bookkeeping, and identify potential deductions for business expenses.

Planning Your Grand Opening

The launch event is your opportunity to present your brand to your target audience and the community. It involves devising marketing tactics, promotional activities, and ways to engage customers. Publicising the event and offering special promotions can attract patrons and create excitement about your establishment.

Screenshot Of Canada Chamber Of Commerce Website

The Benefits Of Starting A Business In Canada

Canada is known for being a welcoming place for foreign entrepreneurs, with a strong economy and a strategic position on the global stage. The nation is home to over 38 million people. It ranks as the 10th largest economy worldwide, offering a lucrative market and a gateway for businesses aiming to go global. Canada’s economic resilience is backed by smart fiscal policies, shrinking public debt, and a pattern of growing exports. This financial stability draws businesses in by reducing worries about potential economic downturns or market shifts.

The Canadian economy has bounced back impressively after the pandemic, thanks to government initiatives aimed at helping businesses recover and boosting household incomes. This has resulted in stronger economic growth than that of its southern neighbour, the United States, and the United Kingdom across the pond. The strength of the Canadian dollar further underscores the nation’s economic health.

If you’re thinking about starting a business, Canada’s tax conditions are desirable. Corporate tax rates here are among the lowest in the Western world, with a general rate of 15% and a reduced federal rate of 9% for Canadian-controlled private corporations. These rates are much lower than those in the United States, where the corporate tax rate is 21%, and in France, where it’s over 30%. Canada’s tax system is designed to prevent double taxation on corporate and shareholder income, and the Small Business Deduction lets smaller companies enjoy an even more favourable effective tax rate.

Canada’s location is unbeatable. It borders three oceans and hosts numerous bustling ports and international airports, enhancing its accessibility. The extensive land border with the United States makes trade and travel between the two countries a breeze. This geographic advantage also makes it easier to attract international talent. It contributes to a diverse workforce, driving innovation and productivity.

The Canadian workforce is among the most educated in the G7, with many adults holding post-secondary qualifications. The government’s commitment to education ensures that the workforce is ready to thrive in a dynamic work environment. The income tax treaty provides relief from double taxation for businesses operating across the border, particularly with the United States. It lowers withholding taxes on certain types of income, which benefits residents of both countries involved in business.

Canada’s banking system is known for its stability and strict regulatory framework, which helped it overcome the global financial crisis better than many of its peers. This solid banking system, a highly skilled workforce, rich natural resources, and favourable free trade agreements like NAFTA, CETA, and the CPTPP make Canada a top-notch choice for business investment.

Protecting your intellectual property (IP) is crucial when expanding existing business internationally. Canada has stepped up its IP regime, joining international treaties like the Hague Agreement and streamlining procedures to reduce administrative burdens. However, it’s essential to register and enforce your IP rights according to Canadian laws, as protections from other countries don’t carry over into Canada.

While Canada offers a supportive environment for businesses, it’s worth noting that setting up a business can be complex, especially for foreign entrepreneurs, when it comes to establishing a legal entity. There are specific rules for foreign acquisitions in certain sectors, and procurement procedures require foreign bidders to be registered in Canada. Also, public documents must be authenticated at their origin since Canada isn’t a member of The Hague Convention.

Canada is an attractive option for businesses looking to tap into global markets while enjoying tax perks. The country provides a range of incentives and tax credit schemes, like the Global Skills Strategy for fast-tracking skilled workers, the SR&ED tax incentive program for research and development, and the Strategic Innovation Fund. These programs, along with the support of the Canadian Chamber of Commerce and government resources like the Business Benefits Finder and BDC’s Business Performance Benchmarking Tool, offer a supportive infrastructure for businesses to flourish in Canada.

Embarking on Your Canadian Business Journey

Whether you’re a local entrepreneur or an international business magnate, Canada’s robust economic climate is ripe for opportunity. With a clear understanding of regulatory frameworks, tax systems, employment laws, and the nuances of industry-specific licensing and the cultural fabric of this dynamic country, your business is poised to thrive.

Navigating the journey requires diligence, planning, and a bit of that pioneering spirit intrinsic to the Canadian identity. As with any great adventure, the path to success is built on thoughtful preparation and an unyielding commitment to your vision. Armed with this guide, the exciting process of planting your business flag on Canadian soil will be achievable and immensely rewarding. Welcome to the land of possibility!

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